Tuesday, November 06, 2007

Paperstand (WCG, BKS, GME)

The WSJ’s “Heard on the Street” column discusses WellCare (WCG), saying that as details of the govt inquiry emerge, some say the hedge-fund selling may have created an opportunity for investors with an appetite for risk. On word that state and federal agents descended on WellCare's HQ Oct. 24, the co's stock price declined from $128 a share the day before to less than $21 in about a week. A number of hedge funds using computer-based, quantitative models appeared to be among the biggest losers. The rash of selling suggests that the same models that pushed the quant hedge funds to scoop up shares began urging them to sell when the stock fell, even though it isn't clear how the investigation will affect the co. By some analysts' ests, quantitative funds controlled 40% of the shares before the price drop. WellCare's hefty profit margins were among the reasons computer models lit up. Brian Wright, of Jefferies, says quantitative firms were so heavily invested in WellCare also b/c of the co's recent tendency to beat analysts' earnings tgts, then raising guidance. Those same attributes, however, worried investors who don't depend on computer models. In the spring, several Wall St analysts expressed concern. Carl McDonald, of CIBC, questioned the amount of money WellCare was getting from the state of Florida compared with competitors. He has an Outperform rating on the shares. "Ppl have always had some concerns about WellCare; they have higher margins than others in the sector," said Peter Costa, of FTN Midwest. Friday, Mr. Costa upgraded his rating on the stock to the equivalent of Hold from Sell.

According to the WSJ, Wall St investment banks plan to launch tomorrow an offering of up to $10bn in loans for Chrysler's automotive business. The offering amounts to a second try at a debt sale that was postponed in July amid gathering credit-market turmoil. The loans are connected to the recent acquisition of a majority stake in Chrysler by Cerberus Capital Mgmt. The banks' efforts to find investors for the Chrysler loans this month come amid a recovery in the mkt for risky corporate debt in recent weeks. It isn't clear how much of the $10bn in Chrysler auto-business loans the banks will try to sell this month and whether they will be able to find enough investors to take on the debt.

“Inside Scoop” section reports that Leonard Riggio, Barnes & Noble (BKS) founder and chmn, bought shares on the bookseller but trimmed his position in GameStop (GME), a videogame retailer of which he is a director. From Oct. 24 through 29, Riggio sold 2m GameStop shares for $116.2m. Earlier that month Riggio bought 600K shares of Barnes & Noble for $22.8m. It's been a tale of two stocks so far this year: GameStop shares have soared 107% while Barnes & Noble has slipped 8.4%.